UPDATE: Coronavirus Aid, Relief, and Economic Security Act Paycheck Protection Program

UPDATE: CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ACT PAYCHECK PROTECTION PROGRAM

On Friday, May 15th, the Small Business Administration (the “Administration”) published the form of Paycheck Protection Program Loan Forgiveness Application (the “Application”). Borrowers that have received covered loans (“Covered Loans”) under the Paycheck Protection Program (the “Program”) may complete and submit the Application to their lenders to apply for forgiveness of their Covered Loans.

The Administration has indicated that additional regulations and guidance regarding Covered Loan forgiveness is still forthcoming. However, in the meantime the Application clarifies and expands certain aspects of Covered Loan forgiveness under the Program, including the following:

• The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provided that a borrower’s “Covered Period” was the eight week period beginning on the date the borrower received a Covered Loan. The Application provides an alternative method of calculating forgivable payroll costs for borrowers with a biweekly (or more frequent) payroll schedule. A borrower with a biweekly (or more frequent) payroll schedule may elect to calculate forgivable payroll costs using the eight-week period that begins on the first day of its first pay period following the date the borrower received a Covered Loan. The alternative Covered Period with respect to payroll costs is referred to in the Application as the “Alternative Payroll Covered Period.”

• The CARES Act provided that a borrower’s “payroll costs” consist of those payroll-related expenses set forth in the CARES Act that are incurred and paid during the applicable covered period. The Application clarifies that payroll costs that are incurred but not paid during a borrower’s last period of the applicable Covered Period (or applicable Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.
• The Application clarifies that forgivable non-payroll costs (i.e., covered mortgage obligations, covered rent obligations, and covered utility payments) may be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the end of the Covered Period. Note that forgivable non-payroll costs are calculated based on a borrower’s Covered Period, irrespective of whether a borrower has elected to apply an Alternative Payroll Covered Period with respect to its forgivable payroll costs.
• The Application includes step-by-step directions for the calculation of any reduction in forgiveness arising from (a) reductions in employee (as defined in the CARES Act) pay by more than 25% or (b) reductions in the number of full-time equivalent employees.
• The Application clarifies that for the purposes of determining an employee’s “full-time equivalency,” a borrower should divide the average number of hours worked by an employee during the applicable Covered Period or the applicable Alternative Payroll Covered Period by 40, rounded to the nearest tenth, and capped at 1.0.
• The Application provides several exceptions to the loan forgiveness reduction arising from a reduction in the number of full-time equivalent employees. A borrower’s loan forgiveness is not reduced as a result of (a) any positions for which the borrower made a good-faith, written offer to rehire an employee during the applicable Covered Period or the applicable Alternative Payroll Covered Period that was rejected by the applicable employee, and (b) any employees who during the applicable Covered Period or the applicable Alternative Payroll Covered Period (i) were fired for cause, (ii) voluntarily resigned, or (iii) voluntarily requested and received a reduction of their hours.
• The Application lists the documentation that must be provided by a borrower to verify its calculation of (a) payroll costs, (b) full-time equivalent employees, and (c) non-payroll costs. The Application also lists the documentation that a borrower must maintain but isn’t required to submit with its Application.

The form of Application can be found at https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf. A copy is also attached to this notice.

The foregoing legislative update is designed to be accurate and authoritative but is not intended to provide and should not be construed as providing legal advice or as creating any attorney-client relationship with the author or Parr Brown Gee & Loveless, P.C. For legal advice regarding the Coronavirus Aid, Relief, and Economic Security Act, you should consult with your legal counsel.
– Author, Spencer Romney

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